Testimony

Before the Subcommittee on Energy, Committee on

Science, House of Representatives

United States General Accounting Office

GAO

For Release on Delivery

Expected at 10:00 a.m.,

Tuesday, June 12, 2001 FOSSIL FUEL R&D

Lessons Learned in the

Clean Coal Technology

Program

Statement of Jim Wells

Director, Natural Resources and Environment

GAO-01-854T
Page 1 GAO-01-854T Clean Coal Technology Program

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss our past work on the

Department of Energy’s (DOE) Clean Coal Technology program. As you

know, the program was established in 1984 to provide cost-sharing

assistance or partnerships with industry in demonstrating the commercial

applications of emerging technologies, referred to as “clean coal.” The

success of the demonstration program was tied to creating technological

innovations to help clean the environment, fuel an expanding economy

with more coal energy and new jobs, make the U.S. more competitive,

achieve commercial sales, and create new government-industry

partnerships.

DOE funded a variety of projects under the program. DOE was authorized

to fund up to 50 percent of an individual project’s cost, with nonfederal

participants funding the balance. DOE reported to us that the actual

cost-sharing was about 34 percent from DOE and 66 percent from

industrial participants. Overall, DOE has contributed about $1.8 billion,

while the private sector and other nonfederal participants have

contributed about $3.4 billion, for a combined commitment of about

$5.2 billion.

In reporting on the status of the program last year, we noted that

24 projects had been completed, 16 were currently active, and 10 had

terminated or withdrawn.1

 No new projects have been started in the last

5 years. As of October 1999, about $784 million of the available

appropriations had not been spent. Of that amount, DOE expected to use

$589 million to complete the projects and $66 million for program

administration through fiscal year 2004. The Congress rescinded

$441 million (from April 1995 through October 1998) in unobligated funds

associated with terminated or restructured projects. About $129 million

remained unobligated.

The just-completed report of the White House National Energy Policy

Development Group is recommending that the Administration invest

$2 billion in a new restructured clean coal program over the next 10 years.

In this context, our testimony today focuses on the findings of our reviews

of the Clean Coal Technology program conducted over the last decade and

 1

Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal Year 2001

(GAO/OCG-00-8, Mar. 31, 2000).
Page 2 GAO-01-854T Clean Coal Technology Program

the lessons that can be learned from past efforts on this front. In

particular, we want to discuss (1) the successes DOE has reported,

(2) some weaknesses we identified, and (3) lessons learned in

cost-sharing.

In summary, the Clean Coal Technology program has had its ups and

downs. DOE has numerous examples of successes in the program,

including commercialization of some technologies—the primary way DOE

measures success. From a management perspective, we found that many

projects had experienced delays, cost overruns, bankruptcies, and

performance problems. We also expressed concerns about some of the

projects DOE had selected. Nevertheless, this program serves as an

example to other cost-share programs in demonstrating how the

government and the private sector can work effectively together to

develop and demonstrate new technologies.

Although the Nation is heavily reliant on coal as a fuel source for

electricity generation, burning coal has well recognized environmental

consequences. Coal accounts for over 90 percent of the proven U.S. energy

reserves and supplies about half of the nation’s electricity. According to

the Environmental Protection Agency, coal-fired power plants produced

about 63 percent of U.S. emissions of sulfur dioxide and about 19 percent

of the nitrogen oxides. When emitted into the air, these two gasses may be

transformed into tiny sulfate and nitrate particles, both of which may be

transported hundreds of miles away. These gases and substances can

harm human health and the environment in various ways. For example,

“acid rain”—formed when sulfate and nitrate particles are deposited by

precipitation—harms human health and damages forests, lakes, and

streams. In addition, global climate change has been linked, in part, to

carbon dioxide emissions from burning coal. To help address this

problem, DOE began exploring technologies to get the benefits of the

nation’s huge coal resources without the adverse environmental

consequences. In fact, the Clean Coal Technology program has been one

of the largest environmental technology development efforts the federal

government has ever conducted.

The program has been implemented in a series of five solicitations for

project proposals (rounds of nationwide competitions) spread over

9 years. Industry sponsors proposed demonstration projects in response to

each competitive solicitation, and DOE evaluated and selected projects on

the basis of evaluation criteria. The criteria include (1) the project’s

adequacy and technology’s readiness for the proposed demonstration,

Background
Page 3 GAO-01-854T Clean Coal Technology Program

(2) the sponsor’s commercialization plan and the technology’s potential

contribution to emission reductions, and (3) the sponsor’s plan for

financing the project. Each project was carried out and funded under a

cooperative agreement between DOE and the project’s sponsor. The

sponsors directed the design, construction, and operation of their projects,

and DOE oversaw project activities and assessed progress.

DOE has reported numerous successes in the program.2

 DOE noted that

the program has been highly successful in bringing a broad suite of clean,

efficient power technologies and control systems into the marketplace,

which is the program’s primary goal and which will provide the primary

benefits to the nation. DOE has completed 24 projects at a cost of about

$400 million. Of these, 15 had sales of a demonstrated clean coal

technology—3 in the domestic market, 3 in the international market, and

9 in both. These 15 projects cost DOE $282 million and DOE reported that

they are returning billions in commercial sales in addition to numerous

U.S and international patents for technology. A specific example of the

program’s success is a total of 162 commercial units of two clean-coal

technologies (the atmospheric circulating fluidized-bed and the

pressurized fluidized bed combustion) either in operation or soon to be

commissioned. These units are distributed in Europe, Asia, and North

America. Valued at $9 billion, they represent a commercial return of over

$9 for every $1 of DOE’s investment, according to DOE. In addition, the

technologies present an opportunity to use low-quality coal. DOE also

counts as a success the over 700 U.S. and international patents awarded to

domestic technology suppliers of advanced electric power generation,

environmental control, coal processing, and industrial application

technologies. These patents position U.S. industry to compete for an

estimated $480 billion export market over the next 30 years that will

support more than 600,000 jobs in the U.S. power equipment industry.

 2

Clean Coal Technology: Status of Projects and Sales of Demonstrated Technology

(GAO/RCED-00-86R, Mar. 9, 2000).

DOE-Reported

Successes in the

Clean Coal

Technology Program
Page 4 GAO-01-854T Clean Coal Technology Program

Over the years we identified numerous management weaknesses in the

program. In particular, we reported that multiple clean coal technology

demonstration projects experienced problems and difficulties in meeting

cost, schedule, and performance goals. As we reported last year, of

13 projects we examined, 8 had serious delays or financial problems—

6 were behind their original schedules by 2 to 7 years, and 2 projects were

bankrupt and will not be completed.3

 The delays and cost overruns

occurred, in part, because of changes in a project’s site as well as a

project’s participants. DOE extended deadlines several times on some

projects to allow their sponsors to restructure the projects, find suitable

alternative project sites, and obtain financing commitments to make the

projects economically viable.

On another front, in 1991, we questioned whether DOE had adequately

protected federal investments in the projects it funded.4

 For example, DOE

did not always comprehensively consider whether projects were likely to

be successfully completed when it provided additional funding to cover

cost increases. Some projects were withdrawn from the program after

receiving additional funds. Furthermore, DOE requires that project

sponsors eventually repay the federal investment from revenues resulting

from the subsequent use of the technologies. However, DOE reduced the

likelihood of recouping its investment by reducing the percent of sales

revenues subject to repayment.

In addition, we reported on problems with DOE’s project selection

process. For example, we identified some projects demonstrating

technologies that might have been commercialized without federal

assistance. We also identified projects that might have limited potential for

widespread use as well as projects that have proven not to be

economically viable. DOE selected such projects to achieve a diversity of

technologies. Although these projects met DOE’s selection criteria, they

may not be the most effective use of federal funds.

 3

Clean Coal Technology: Status of Projects and Sales of Demonstrated Technology

(GAO/RCED-00-86R, Mar. 9, 2000).

4

Fossil Fuels: Improvements Needed in DOE’s Clean Coal Technology Program

(GAO/RCED-92-17, Oct. 30, 1991).

GAO-Reported

Weaknesses in the

Clean Coal

Technology Program
Page 5 GAO-01-854T Clean Coal Technology Program

In 1990, we also questioned the pace and focus of the program.5 We noted

that many of the technologies selected for demonstration may have limited

potential for achieving nationwide emission reductions when used at

existing coal-burning facilities. Also, some of the selected projects may

have difficulty in successfully demonstrating, and ultimately

commercializing, their technologies. Given the selections that DOE made

in its second round, we were concerned that it may have problems in

identifying and funding additional promising projects in future rounds.

Delaying subsequent rounds until DOE obtained additional demonstration

results from projects already in the program would allow DOE to make

more informed decisions regarding the identification, selection, and

funding of the more promising technologies. It would also help ensure that

the funds allocated to this program were effectively and efficiently spent.

In a 1994 report, we noted that the Clean Coal Technology program

offered an example of the government and the private sector working

together effectively to develop and demonstrate new technologies.6

 We

identified lessons learned from the program that could be applied to other

cost-share programs. They included:

• Full funding (through advanced appropriations) to cover the total federal

share of project costs increases participant confidence that federal funds

will be available for multiyear projects.

• Cooperative agreements between the federal government and participants

allow participants more flexibility in managing their projects, providing

clear instructions on the roles and responsibilities of the government and

the nonfederal participants.

• Federal cost-sharing limits help to ensure the industry’s commitment.

• Early industry participation in developing solicitation documents helps the

industry to structure responsive proposals.

• A comprehensive process for evaluating and selecting projects and

keeping it free of political influence helps ensure the program’s integrity.

• Multiple, sequential solicitations for project proposals enable an agency to

modify the program’s objectives to meet changing needs and to benefit

from lessons learned.

 5

Fossil Fuels: Pace and Focus of the Clean Coal Technology Program Need to Be Assessed

(GAO/RCED-90-67, Mar. 19, 1990).

6

Fossil Fuels: Lessons Learned in DOE’s Clean Coal Technology Program

(GAO/RCED-94-174, May 26, 1994).

Cost-Sharing Lessons

Learned
Page 6 GAO-01-854T Clean Coal Technology Program

In conclusion, to address today’s energy challenges, the lessons learned

from the Clean Coal Technology program should be considered as the

Congress decides how to use future research dollars.

Mr. Chairman, this completes my prepared statement. I would be happy to

answer any questions you or Members of the Subcommittee may have.

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